The European Central Bank's (ECB) Governing Council has increased its key interest rates by 25 basis points each, in order to stabilise inflation at its 2 per cent target in the medium term. This measure, to which the capital market had already reacted, is interpreted by real estate industry experts as a confirmation of existing trends. The adjustment to higher financing costs is already underway in the real estate sector.
Various voices from the industry shed light on the consequences of this interest rate adjustment for different market segments and business models. Professor Dr. Steffen Sebastian from the IREBS Institute for Real Estate Studies at the University of Regensburg states that higher long-term interest rates are more likely due to increased government debt, defence spending, and investment needs. This means that the real estate industry must permanently adapt its business models and calculations to a higher interest rate level, without this necessarily implying a renewed crisis, as historically, interest rates tend to be in the mid-range. The end of the low-interest rate phase requires a structural reorientation.
Francesco Fedele, CEO of BF.direkt AG, does not see the increased interest rate level as a deterioration of business, but rather as the necessity for adapted business models. The adjustment is thus taking place via land prices, financing structures, and investment decisions. A renaissance of models such as option models is expected, where payment for land is only due after building rights or building permits have been obtained, in order to distribute risks between sellers and developers. Such practices, rare during the low-interest rate phase, could become more prevalent again.
Ulrich Creydt, tax advisor and managing director of Ypsilon Group, regards the interest rate hike as understandable, as rising energy and raw material prices due to geopolitical crises required a reaction from the ECB. He predicts that higher interest rates and ongoing geopolitical uncertainties will dampen sentiment in the real estate industry and tighten financing conditions for developers and investors. This could lead to a reduction in transaction volumes. Additionally, private buyers might postpone property purchases, which would intensify the 'lock-in' effect on the rental housing market and prevent it from relaxing.
Patrick Brinker, Head of Real Estate Investment Management at Hauck Aufhäuser Lampe Privatbank AG, concludes that the interest rate hike reinforces investment caution in the real estate industry. Financing costs complicate the implementation of new projects and follow-up financing. Nevertheless, attractive investment opportunities still exist. Digital infrastructure, such as data centres, remains in demand due to intact growth drivers and compelling yield prospects. Furthermore, equity funds without external financing can exploit opportunities in a more challenging market environment. Investors will differentiate even more strongly in this regard and direct capital into permanently stable segments.
Professor Dr. Felix Schindler, Head of Research & Strategy at HIH Invest, and Michael Eisenmann, Managing Director of Real Blue Kapitalverwaltungs-GmbH, agree that the ECB's interest rate increase was not a surprise. They emphasise that the step was already priced into long-term capital market rates and current financing conditions. Schindler points out that long-term capital market rates are of greater importance for real estate markets. The increase in prices now extends to more and more goods and services, beyond energy and raw material prices, which makes a further interest rate hike later in the year likely.
